Building A Better Taco

So Cadillac says it’s great I’m looking for stocks in emerging foreign markets (China, Brazil, Russia, India) but all the stocks I've mentioned are well-known and therefore priced into the market. Potentially good investments still but how can an average investor try and do a little better?

I think back to Peter Lynch in “Beating the Street” taking that first bite of Taco Bell. That experience led Lynch to Taco Bell’s balance sheet and then to Taco Bell's miserly corporate headquarters. Taco Bell would become a mega-bagger for Lynch in his Fidelity Magellan days.

So where's my taco? Some ideas:

(1) Visit Brazil. Perhaps this summer. I’ve always wanted to go and I think it’d be fun to learn Portuguese. Better yet, I’d get a ground view of where newly discovered Brazilian wealth is being spent.

(2) As an engineer, I love to understand cutting edge technologies and generally have a sense of what makes them valuable. I especially like oil, cleantech/nanotech, and biosystems research. So what companies worldwide have the potential for a lasting competitive advantage in any of these areas? Do any of these prospective companies hold an intellectual property edge to restrain competition?

I’ve started some technology research online and I'm also looking at historical trend analyses. More on finding a better taco later. --Schlitz

A review of Crash Proof by Peter Schiff with John Downes.

I can remember Peter Schiff being laughed at on CNBC for his alarmist warnings of American consumerism and the impending housing bubble. This book (Crash Proof) sat on bookshelves with specific warnings of debt securitization and the looming housing crisis before it happened. The principles Schiff teaches in this book are now difficult to ignore.

Schiff’s book details the effects of inflation, U.S. conspicuous consumption, and consequential results in plain speak. He also uses frequent analogies to help the reader along in understanding his viewpoints on inflation and why we as Americans should be paying attention to it.

When Schiff speaks about “inflation,” he’s not talking about the inflation figures that Wall Street and the U.S. government publish. Instead, he’s referring to the continuing devaluation of the U.S. dollar through rampant printing of money by the government to satisfy our unrestrained consumption of goods and increasing debt levels.

Why do we have a national debt and why does it matter? Simply, it’s because Americans like to buy things and say “I’ll pay ya back later.” Countries such as China and Japan are now holding this exploding bag of I.O.U.’s. What happens when China and Japan want to be paid back by people who have no personal savings, large debts, overvalued real estate, high unemployment, and a terribly devalued currency (yeah, that’s us)? The answer can’t be good.

If you’re the SUV guy currently paying a mortgage larger than the value of your home while watching a planet sized plasma TV all bought on credit, this book may not appeal to you or stereotypical notions of what makes the “American Dream.”

If you’re like me, I just wanna protect myself from the SUV guy above who doesn't care and this book is a great starting point even if you don't agree with all of Schiff's ideas. I'll look to contribute more foreign investment opportunities to the group although they may be more complex to evaluate.

Shhh!! Here’s a secret. We can still have the “American Dream” but we actually have to produce and pay for it. --Schlitz

Review of The Little Book of Value Investing by Christopher H. Browne

If The New Buffettology is like Omaha Steaks (everyone knows that is supposed to be good and it is but nothing more), The Little Book of Value Investing is like a steak from Costco (pleasantly surprised as it is way better than what you expect from a place like Costco). A discipline of Benjamin Graham and highly influenced by Warren Buffett, Browne shares his investment philosophy in an easy-to-understand way without coming across as heavy-handed or a pompous jerk. As I understood, he uses Graham's definitions of intrinsic value and margin of safety for investing in value stocks. Here are some main points:

• Margin of safety is defined as stocks offered at 2/3rd (preferably 50%) of intrinsic value, company has a low debt to net worth (1:2 is ideal), and diversify your portfolio with a minimum of 10 non-correlating stocks.
• You want a low P/E ratio as earnings drive stock price.
• You can define intrinsic value using advanced statistical methods (such as discounted cash flow analysis) or by determining what the company would be sold at in a leverage buyout.
• You want a share price that is lower than the book value per share. Even better is a price below the net cash balance.
• Look for companies with consistent profit margins, high liquidity and a high return on capital.
• Get stock ideas by looking at what the top 10% of mutual fund managers are investing in.
• Be sure to invest globally but watch out for differences in accounting practices.
• Look for insider buying (as opposed to selling) as it is a more consistent way to tell if the executives think things are looking up for their company.

Next up The Only Three Questions That Count: Investing by Knowing What Others Don't by Ken Fisher (with a foreward by Jim 'Darth' Cramer).

What do you think of these methods? Have you read the book and have a differing opinion?